How to Start a Manufacturing Unit in India?
In the last decade or so, India has become a global hub for foreign investments in various sectors. With more liberalized rules, business-friendly policies and ever-growing customer base, the multinational companies are now setting up their manufacturing units in India. This has resulted in increase in foreign company registration in India. There are multiple benefits and advantages of setting up business in India as mentioned below:
- Lower production costs
- Lower parts assembling cost
- Lower transportation costs
- Better price margins
- Reduced time leads for the consumers
- Provides a sense of confidence within the consumer that the company is here to stay for a long time and won’t just run away. It will provide long term commitment to the customers and serve them for better.
Even though it has so many benefits it is fraught with challenges for setting up manufacturing units in India by a foreign company. One needs to look into different aspects of manufacturing setup and manage it by them or with professional help. From obtaining licenses and approvals to contacting vendors and contractors, from project planning to construction to procurement and to establishing a proper financial management, all this must be completed timely and with quality.
From feasibility of the project regarding the construction of manufacturing unit to the final execution of the project plan, here are the steps involved in setting up manufacturing unit in India.
A) Evaluation Process:
- Analysis of location feasibility:The location feasibility where the manufacturing unit is to be set up and constructed must be checked with the help of both Micro as well as Macro Analysis tools. The two basic parameters through which the location could be analyzed wholly are-
a) Studying the Site Location: Under this, the following aspects are to checked thoroughly-
- Demographic characteristics of the land location.
- Analysis of the market.
- Projecting the growth.
- Income statements projected.
- Traffic count in the surrounding area.
- Value of comparable land.
- Present developments in the neighborhood.
- Future developments in the neighborhood.
- Statistic of the crime in the area.
b) Studying the development feasibility: The following aspects are to be determined:
- Utilities available
- Egress or ingress
- Curb cuts
- Requirements related to city ordinances
- Development Suitability in the area
- Environmental conditions
- Flooding zones
- Future road construction plans
- Paving and building of the setback lines
- Restrictions regarding zoning
- Restrictions regarding deeds
- Restrictions regarding signage
- Requirements for storm water
- Drainage facility requirements
- Broadband availability
- Telephone availability
- Search for building or industrial land or shed: The owner is required to search for the perfect area or land that can be used for industrial or commercial purposes. He/she can also search for any building or sheds that cater to their needs and as well as comply with the land laws and industrial laws.
B) Establishment and Pre-Construction of the manufacturing unit:
- Acquisition of the building or industrial land or shed: Once the search for the perfect land or building area for the manufacturing unit is completed, the owner is required to acquire the same as per the land acquisition laws of the particular state where the location is.
- Detailed planning of the project: The associated staff or the authorized people by the company are required to formulate a detailed plan for the project. It must include how the project is to be executed for setting up the manufacturing base, time period till the project is to be completed, requirements of the projects and other important details.
- Selecting the architect, contractors, consultants and vendors: Selecting the right people to carry forward the project is utterly important.
- A knowledgeable and experienced architect must be hired for getting the best possible design for the manufacturing building. It is also the duty of the architect to provide a design that is safe and secure from any calamity or disaster and also uses each and every bit of the location space to the best of its use.
- The contractors for various tasks are to be hired as per the requirements and their efficiency to deliver the project material on time.
- It has become a necessity to hire a project management consultant these days in order to keep a check on the project work. Also they help in managing the plan in the best way possible.
- Vendors are to be selected on the basis of the best price quote they are offering, time period till which they will be completing the order etc.
- Preparing the tender:A proper tender document is to be prepared for construction work in through which the contractor is to be hired and an agreement on the pricing is to be done between the parties in advance.
- Approvals, licenses and registrations to start the construction work:The owner or the authorized person is required to take prior approvals and registrations beforehand so that no delay happens in starting the construction. Also, various licenses as prescribed by the Factories Act, Labor laws, the Companies Act and Environmental laws are to be obtained before starting the construction of the manufacturing unit in India.
C) Construction work:
A complete Project Management is required before construction of the manufacturing unit commences. Project Management can be defined as a process of planning and executing the project plan to its original self. The basic objective of project management process is to achieve all the defined goals by using the made plans, timeline schedules and the available resources for execution. Here are the two basic principles of project management for the construction of the manufacturing set up-
- Monitoring the Construction Progress: The construction progress must be monitored or inspected on regular intervals to ensure that the work is happening in a consistent manner and the funds requested by the contractor for the same are utilized appropriately. It is an important step as it helps in ensuring that the goals and objectives are completed on timely basis and are not delayed due to any internal reasons.
- Managing the Financials: The financials of the construction work plan are to be looked upon as well in order to ensure that the funds are accurately used as well as for whether the project is not underfunded. The following matters are to be looked into beforehand for a complete financial management-
- Tax compliances
- Other important compliances
D) Post Construction:
- Completion of project and handling over: Once the construction is completed, the deliverables regarding the project are to be handed over to the operational department by the project management.
- Licenses and Approvals for production commencement: After the manufacturing unit is built completely, it’s time to use it for the production activities. However, before commencement of operations of the unit, the company is required to register, get approvals and licenses as mentioned below:
- Company Registration in India as per the Companies Act, 2013.
- Certificate from State Pollution Control Board.
- Goods and Services Tax (GST) Registration for taxation matters.
- Trade licenses from the local competent authority.
- AGMARK in case of any agro based company.
- BIS certifications.
- Import Export Code (IEC) in case the company wants to import or export the materials or exports the produced goods.
- Registration of the trademark.
- UDYOG AADHAAR Registration.
- MSME Registration.
- SSI registration.
- License from Food Safety and Standard Authority of India (FSSAI) wherever applicable.
- Project Audit: The project is required to be reviewed formally. This is basically for assessing whether the management standards were upheld correctly or not. A project audit is generally conducted by the designated staff from the Project Management Office, Management Committee approved by the company, audit department or an external auditor hired by the company.
Thus, it may be inferred from above that setting up factory or manufacturing unit in India is quite a complex process and involves use of lot of professionals and is time consuming process.
We at EzyBiz India provides one window solution to foreign companies who want to set up manufacturing unit or factory in India right from inception till the final running of the factory through our team of experts which involves Engineers, Architects, Real estate Consultants, Chartered Accountants, Company Secretaries, Lawyers, Registered Valuers and Management Graduates.
For any inquiry, please contact Anil@ezybizindia.in